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Redevelopment Authority v. Fidelity and Deposit Co.

decided: December 3, 1981.



Before Seitz, Chief Judge, Garth, Circuit Judge, and Pollak,*fn* District Judge.

Author: Seitz


This is an appeal by Fidelity and Deposit Company of Maryland (F&D) from a final judgment of the district court granting the motion of appellee Grinnell Fire Protection Systems Company, Inc. for summary judgment. Jurisdiction in the district court was based upon diversity of citizenship, and this court has jurisdiction under 28 U.S.C. ยง 1291 (1976).


W.M. Anderson Company, as principal, and F&D, as surety, executed and delivered a Labor and Materials Payment Bond to the Redevelopment Authority of the City of Philadelphia (the Authority) in connection with a construction contract between Anderson and the Authority. The payment bond stated that "(in) no event shall the surety be ... subject to any suit, action or proceeding thereon that is instituted later than one year after the complete performance of said contract and final settlement thereof." Grinnell was a subcontractor of Anderson. Anderson currently owes Grinnell $30,227.12.

All adjustments made in the contract price between the Authority and Anderson were agreed upon by August 1978 with the exception of three items that were ultimately contained in the last change order. This change order was signed by Anderson on October 14. All three items, however, had been submitted to and considered by the Authority prior to August, and the Authority apparently reached a judgment before October 14 about what it considered should be the adjustments to the contract price because of those three items. On September 25, Anderson wrote the Authority inquiring whether the Authority would agree to process Anderson's account if Anderson withdrew certain other claims against the Authority. A schedule was submitted showing amounts and items in dispute, as well as amounts that the Authority had offered with respect to the three adjustments in the last change order. The letter indicates that Anderson was willing to accept the figures offered by the Authority, and they were ultimately encompassed in the change order. The Authority's construction manager approved the last change order on November 17, and the architect approved it on November 28, 1978.

On November 15, Anderson signed the Application and Certificate for Payment (the Certificate), which included the adjustments from the last change order. The architect approved the Certificate on December 20, and the Authority's construction manager signed it on January 2, 1979. Grinnell instituted this action for the balance on October 5, 1979.

The parties filed cross-motions for summary judgment. These motions posed the question whether Grinnell's suit against F&D was timely brought. The question was two-fold: (1) whether the Pennsylvania statute of limitations barred the suit for reason that it had not been brought within a year from the date on which Grinnell concluded the provision of labor and material; and (2) whether the suit was barred because F&D had not been sued within the limitation period contained in the performance bond. Grinnell argues that "final settlement" in the payment bond's limitation period refers to the date of execution by the architect of the Certificate. F&D asserts that "final settlement" refers to the time when the Authority determined the amount the contractor was entitled to receive under the contract and that this determination had been made by the Authority more than a year prior to the institution of the suit. The district court granted summary judgment in favor of Grinnell. F&D appeals.


Under controlling Pennsylvania law, the parties may agree on appropriate limitation periods. See Insurance Co. of North America v. Carnahan, 446 Pa. 48, 51, 284 A.2d 728, 729 (1971). F&D contends, however, that the contractual limitation provision, by its terms, was not intended to lengthen Pennsylvania's statute of limitations, which F&D argues began running after Grinnell's work was completed and accepted, and thus had run prior to the commencement of this action. F&D maintains that the language of the payment bond was not intended to change the period which Grinnell may have under statutory limitation provisions to bring suit, but merely establishes an additional prohibition against suits brought more than one year after performance and final settlement. The Pennsylvania statute of limitations measurement is clear, definite, and based upon factors known to and under the control of the supplier, and F&D argues that there is no need to distort the definition of final settlement to serve policy considerations. In a word, F& D's contention is that final settlement is a term of art that does not have any particular significance to the Authority, to the obligors on the bond, or to the suppliers, and that under such circumstances, there can hardly be any meaningful effort to ascertain objective intent or purpose to be served by the clause.

We reject F&D's argument for two reasons. First, the terms of the payment bond only relieve F&D from liability on suits instituted more than one year after completion and final settlement of Anderson's contract with the Authority. It is undisputed that the phrase "final settlement" is a term of art with origins in federal statutory and decisional law, and occurred when the Authority administratively determined the amount it considered to be due to Anderson upon the completion of the contract.*fn1 We think that it is reasonable that the parties would agree to start the period of limitations from the date of that event, which Anderson, its surety, and its subcontractors are readily able to ascertain.

Second, F&D's construction would render the contractual limitation language a nullity. Its construction would determine the timeliness of suits on the payment bond strictly by reference to the limitation period set forth in Pennsylvania law, ...

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